Mathematical Proof for the Trading System Employed by the RoboMiner

Note- This information is current as of September, 2008. Although the AUDNZD has been pushing
against the high end of its historical range in recent months, the system has held due to the built
in safeguards which allow for limited extensions of that historical range. In addition, the ability of
the RoboMiner to carry on trading with the EURCHF has been a big help to the overall system,
while waiting for the AUDNZD to return to its normal trading range.

The hypothesis is that there is a method to trade the Forex market that limits the risk to the
point where our risks are the same or less than other types of investments.

The theory is simply that if we had $2000 and bought or sold only .01 standard lots of the
AUDNZD currency pair, then no matter what the price went to in its historical operating range,
no one would ever get a margin call. I will show that by limiting the investments to a small
percentage of the balance that we can achieve this result.

The currency pair that I will use for this proof is the Australian dollar and the New Zealand
dollar AUD/NZD. These two countries are located in immediate proximity to each other and
have the same types of economies. They look and act so much alike that if something affects
one, it will almost always affect the other in a like manner. The history of their currencies bear
this out as well. They do behave very similarly, but not exactly the same. If we look at the
history of this currency pair from the highest price it has reached to the lowest that it
achieved since 2001, we can see that the entire range is just over 2500 pips. From a high of
1.2966 to a low of 1.0428 is .2538 or 2538 pips.

The center of this range is (1.0428 + 1.2966)/ 2 = 1.1697. We will get to why this center is
important later on. For now we will use the entire range as 2500. When we look at this pair, it
becomes obvious that the wave action is about 50 pips. That is to say that the price of the
AUDNZD will frequently move up 50 pips and down by the same amount. If we buy .01
standard lots of this currency and sell it after the price moves up 50 pips, we will make a profit
of approximately $3.60. If the price goes the other way by 50 pips we will of course have a
loss of $3.60 as well.

Grid trading is the method of dividing the total range (2500 pips) into sub ranges of 50 pips
each. This will give us 50 sub ranges. Every time the price moves up 50 pips, we close our
buys for a profit and open a new buy for the same number of lots. Since we don't know if the
price is going up or going to go down, we can also sell the same number of lots. Most people
that grid trade do it this way.

When the price is climbing on the weekly and monthly charts we would see a string of opened
sells left, one for each sub-range that the price has moved through. I am going to give you
the formula to determine what impact each individual sell left hanging has in a moment, but
first I want to describe what is actually happening. As the price moves up, each instance of
sell is getting more negative by the same amount as each other open sell. Each range will
add the same amount of negative impact to the profit/loss as you would make by closing out
the buy for a profit. The first instance would contribute its value times the number of ranges
that the price moves through. To add all of these up, take the total number of ranges that the
price has gone through and multiply it by the total ranges plus one, then divide by 2. This
number is the same as if only one sell went through each of them. Let's call each one of
these a 'lot-range'. The formula is (X times X+1)/2 If the AUDNZD has a total range of
2500 pips and has 50 sub-ranges then we multiply 50 times 51 and dived by 2 which is 1275
lot-ranges.

I won't show calculations for the contributing profit but will give you the value for .01 standard
lots per 50 pip range which is $3.60 . To find out how negative our profit/loss column is just
multiply the $3.60 times 1275 lot ranges. That comes to $4590. Each .01 lots will require
about $5.00 of margin (at 200:1) or about $250 for all 50 ranges. This means that if you have
$4600, you could grid trade .01 lots without worrying too much about a margin call. The
question is this, is it worth it?

There are about 50 trades per month on average if you count both buying and selling. To be
conservative I will use 36 trades per month. 36 trades times $3.60 per trade is $129.6.
Our percentage is $129.6 per month divided by $4600 needed in the balance to trade .01 lots.
$129.6 / $4600 = 2.8% per month.

If you can live with 33.6% per year then this will work but if you can't, then try this; only do
sells on the top 25 ranges, anything over the center point of 1.1697 and buys for any trade
under the center price of 1.1697. When the price is at the center range you will have 1 open
trade, either a buy or a sell depending on the direction of the price change. Now the most
that the accumulated string of buys or sells that would be left opened is 25. Using our
formula, 25 x 26 / 2 = 325 lot-ranges.

At $3.60 per range, 325 lot-ranges will need $1170 to cover the .01 lots plus another $125 to
cover the margin. This will cover the whole 50 ranges, but only 25 at a time. This also means
that you will have only half of the number of trades because you are doing only buys or only
sells. $3.60 per trade times 18 trades per month is $64.80/month. $64.80 / $1295 = 5.00%
per month or 60% per year. You can greatly increase your profits by doing fewer trades.

On top of this there is compounding. Remember the rule of 72. Every time your profit grows
by $1295 you add .01 lots to each trade. You can potentially double your money every year.

$1000 doubled every year for 10 years is $1,024,000. How much do you need to live on?
Let's assume that you want to further protect your balance and take out only half of what you
make or 2.5% per month. For each thousand dollars that you need per month you would
need to have $1000 / 2.50% or $40,000.

For convenience you can round that to $50,000 for each $1000 you need to take out to live on
each month. The rest of your interest will stay in your account to further protect your balance
from a margin call. What is the danger of this happening? As we have seen, $1295 is
needed to protect .01 lots through all 50 ranges, 25 at a time. The only danger is if the price
breaks its historical boundaries and goes beyond the 25 ranges.

To prepare for this there are several money management things that we could do. At first we
are limited but we could start with $2000 per .01 lots which would add several more ranges
beyond the normal 25. This is assuming that we halt trading at 25 ranges or anything over
the extreme limits which is the currencies historical highs and lows. Second is to raise the
amount accrued before adding another micro-lot. (.01 standard lots is 1 micro-lot). Third is to
fix your lot size that you trade after a certain point to allow your balance to grow and only take
out half of what you make in profits. If you take out 2000 for the month but probably won't
need all of it, open a second account that you don't trade from that you can transfer money
back and forth to from your live trading account. This way, if you need a money transfusion to
keep your trades safe, its available in minutes instead of hours. These added precautions
are only for the case that the price sets a new historical boundary. The likelihood of that
being extreme is mitigated by the closeness of the working conditions of the two currencies as
mentioned earlier.

There is the added risk of human mistakes and trying to be always on hand to manually do
the trades all of the time. For this you can purchase the Robo-Miner. This simpler version of
the GT-Shadow can be set up and used by almost anyone without any technical experience.
The RoboMiner is available at http://www.forex-goldmine.com .

There is also a slight risk that the price will quit changing as much as it has historically done
and the percentage of profits decrease because of it, but there is also a slight possibility that it
could increase as well. You will lose some of your profits to the swap when you have a string
of buys left open but you will make extra from the swap when you have a string of sells left
open as well.

It would be prudent to have a few extra dollars in the account to cover the swap and
extremes, so we recommend that you begin with at least $2000.

This dissertation is on the order of a mathematical proof and not to be construed as giving
trading advice. There has been no attempt to mitigate all risk such as dishonest brokers,
government intervention, or any other non-quantifiable risks that comes with everyday life.

Thank you, and may the Forex be with you.

Bob Llewellyn
http://www.forex-assistant.com

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT
REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE
RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN
MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE
ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR
LOSSES SIMILAR TO THOSE SHOWN.
No representation is being made that any account will or is likely to achieve profits or losses similar to those
shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual
results subsequently achieved by any particular trading program. Hypothetical trading does not involve financial
risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.

All information in this document is for educational purposes only and is not intended to provide financial advice.
Any statements about profits or income, either expressed or implied, do not represent a guarantee. Your actual
trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions,
trades and profit or loss, and agree to hold the developers of the GT-Shadow and RoboMiner and any
authorized distributors of this information harmless in any and all ways.